Record numbers struggling with debt

14th December 2010

In a report published today by a leading academic, if independent forecasts are right and unemployment rises by more than 2% next year, the demand for debt advice by the middle of next year will exceed that seen at the peak of the financial crisis.

The report, ‘Demand, Capacity and Need for Debt Advice in the UK' produced by Dr John Gathergood, an economist at The University of Nottingham, was based on the ONS Wealth and Assets Survey and supplemented by data from the free-to-client debt advice sector. It reveals that between 2008 and 2009, there was an increase of 350,000 individuals seeking free debt advice.

In 2010, 1.4 million people have received advice from charities such as National Debtline, Citizens Advice and CCCS. That is the equivalent of one in every 33 adults.

Joanna Elson, chief executive of the Money Advice Trust, which commissioned the research, says: "The last few years have required debt advice charities like ours to bring about a step change in our capacity, not just to help people out of their immediate debt problems, but also to help them back into financial health with longer term planning.

"Should unemployment rise next year to the extent that independent forecasters predict, together with potential interest rate rises, we will face further challenges in meeting new demand.

"The research has unearthed a challenge that exists already – namely that only one in six people with a debt problem seek advice. It is vital that anyone struggling with debts is able to make informed decisions and understand all of their options; the best way to do that is to seek advice from independent experts."

Credit card debts dominate the concerns of those who are worried about their debts, with 47% saying this accounts for their worries. Of those concerned about their debts, over a quarter (28%) of people are concerned about how far they are into their overdraft.

Also among those who worry about their debts, concern about mortgage repayments has jumped 4% – from 19% to 23%- since the last quarterly survey carried out by R3, the insolvency trade body

There are also concerns that people's spending habits may be taking them deeper into debt, faster than they think. Research shows 25.4 million adults now regularly make purchases online using their credit cards. The average online monthly credit card spend is £192 per month, but Sainsbury's Finance estimates that there are 1.2 million people in the UK spending more than £1,000 per month on credit cards online.

Danny Cox, from financial advisory firm, Hargreaves Lansdown says it is crucial that people take action now.

"Between Christmas and New Year is an ideal time to dust off your old investments and pensions and review how they are doing.

"Are they up to date and still right for you? How they are performing? Could you consolidate your plans and make them cheaper and easier using a fund supermarket. Is it time to cash in your premium bonds? Are you making the most of your cash savings? Have you made the most of all your tax efficient allowances?

"Reviewing your financial affairs does not need to be an onerous task and if you need some help arrange an appointment with an independent financial adviser."

Dr Gathergood, an expert on credit, debt and borrowing in the Centre for Policy Evaluation in the School of Economics, said consumers need to be more willing to seek help and to be made aware of the resources available to them.

He says: "Despite demand for debt advice currently being at near all-time high levels in the UK, the scale of potential need for debt advice among households remains much greater than the level of advice currently sought.

"The report shows that the demand for debt advice is highly sensitive to the macro-economic environment, most specifically to unemployment rates and the cost of credit.

"Statistical analysis suggests that individuals with the greatest level of problem debts are more likely to seek advice, yet still the majority of consumers with problem debt do not."